Correlation Between Metro and Loblaw Companies
Can any of the company-specific risk be diversified away by investing in both Metro and Loblaw Companies at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Metro and Loblaw Companies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Metro Inc and Loblaw Companies Limited, you can compare the effects of market volatilities on Metro and Loblaw Companies and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Metro with a short position of Loblaw Companies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Metro and Loblaw Companies.
Diversification Opportunities for Metro and Loblaw Companies
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Metro and Loblaw is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Metro Inc and Loblaw Companies Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Loblaw Companies and Metro is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Metro Inc are associated (or correlated) with Loblaw Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Loblaw Companies has no effect on the direction of Metro i.e., Metro and Loblaw Companies go up and down completely randomly.
Pair Corralation between Metro and Loblaw Companies
Assuming the 90 days trading horizon Metro Inc is expected to generate 0.81 times more return on investment than Loblaw Companies. However, Metro Inc is 1.23 times less risky than Loblaw Companies. It trades about 0.41 of its potential returns per unit of risk. Loblaw Companies Limited is currently generating about 0.07 per unit of risk. If you would invest 8,240 in Metro Inc on August 28, 2024 and sell it today you would earn a total of 722.00 from holding Metro Inc or generate 8.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Metro Inc vs. Loblaw Companies Limited
Performance |
| Timeline |
| Metro Inc |
| Loblaw Companies |
Metro and Loblaw Companies Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Metro and Loblaw Companies
The main advantage of trading using opposite Metro and Loblaw Companies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Metro position performs unexpectedly, Loblaw Companies can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Loblaw Companies will offset losses from the drop in Loblaw Companies' long position.| Metro vs. Loblaw Companies Limited | Metro vs. Saputo Inc | Metro vs. Empire Company Limited | Metro vs. Dollarama |
| Loblaw Companies vs. Metro Inc | Loblaw Companies vs. George Weston Limited | Loblaw Companies vs. Canadian Tire | Loblaw Companies vs. Dollarama |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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